High net worth investment capital

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High net worth investment capital

Australia's 284,000 high net worth individuals have over $1.4 trillion in available investment capital.

This means Australia's high net worth sector is only a quarter of the number of people in the self-managed superannuation fund (SMSF) segment, yet it has half the investment capital of Australia's entire superannuation system.

These insights have been released by Rainmaker Information based on analysis of research published by Capgemini Consulting Group.

The analysis aimed to outline potential synergies and investment opportunities between Australia's family office and high net worth investment sector as well as the superannuation sector.

Australia's high net worth sector is growing rapidly. Between 2009 and 2019 the number of high net worth individuals increased 63% or at a rate of 5% p.a., being five times faster than the growth rate of Australia's population.

Rainmaker estimates that the typical high net worth individual now holds $5 million in available investable capital.

"Traditional investment managers continue to struggle to tap into this lucrative segment due to client-side disinterest in standard investment and advice solutions," said Alex Dunnin, executive director of research at Rainmaker.

"These individuals are instead more likely to seek boutique and tailored investment opportunities that are not normally available through retail and wholesale investment solutions providers."

Nevertheless, Australia's high net worth investment capital continues to grow on par with superannuation FUM. Between 2009 and 2019, high net worth investment capital grew at 8% p.a. and superannuation FUM grew 10% p.a.

In combining both superannuation and high net worth investment sectors, the total value of potential investment size sits near $4.3 trillion (at end 2019).

By end 2020 this amount likely grew another 3.5% to $4.5 trillion.

Combined with non-superannuation FUM, the aggregate value of Australia's total wealth management market could sit as high as $6 trillion. Combined with the value of Australia's housing stocks, there is estimated to be $14 trillion invested in wealth management and residential real estate.

"There is a vast amount of investment capital available in Australia. But the owners of this capital are discerning. Investment managers that wish to attract this money into their investment products need to first prove their credentials."

High net worth individuals on average hold only one-third of their invested assets in equities segments, while they reserve a further 25% for defensive, cash-based investments. For comparison, superannuation holdings allocation is roughly 45% into equites and 10% into cash.

"It might seem counter-intuitive, but high net worth individuals, while very wealthy, are more concerned about capital preservation than making huge investment profits. This can make them very discerning investors," said Dunnin.